Analysis by an industry leader has examined how the type of borrower affects the likelihood of a mortgage default

As of this week Australian banks will be accountable to a new code designed to improve the rights for their customers.

The revised code, which is contractually binding for all subscribing banks, requires banks to better respond when customers are in positions of financial hardship as well as providing clearer and more in-depth information regarding options, rights and concessions.

Steven Münchenberg, chief executive of the Australian Banking Association says the new Code reinforces the banking sector’s commitment to acting fairly responsibly and transparently.

“Banks recognise they have to be there for customers in the long run and not just there to ensure they’re making their month-to-month payments,” says Munchenberg.

“There are times when any one of us can suffer a setback that means we can no longer meet our financial obligations, like paying the mortgage or credit card bill. This can happen because our working hours have been reduced or we’ve even lost our job, because of unexpected illness, because a relationship breaks down, or for a host of other reasons. It’s at times like these that banks can try to help people get through their financial difficulties and back on their feet.”

Significant changes to the Code include:

New and stronger financial hardship provisions - banks are more alert to people who may be in financial difficulty when meeting their repayments, staff to respond promptly to requests for assistance, and banks to ensure staff are trained in understanding the bank’s financial hardship commitments;

- A commitment not to combine accounts or assign the customer’s debt when a bank is actively considering whether the customer is in financial difficulty;

- A commitment to provide information about no or low-fee accounts to customers if the bank becomes aware the customer has a Commonwealth concession card, such as a Seniors Health Card, Health Care Card or Pensioner Concession Card;

- New provisions for customers in remote Indigenous communities, including making relevant information accessible, providing assistance to customers to meet identification requirements and appropriately training relevant staff to be culturally aware;

- A commitment that banks only sell debts to third parties that agree to comply with the ‘Debt Collection Guideline: for Collectors and Creditors’; and

- A commitment to send customers with a mortgage, on a primary place of residence or residential investment property, an annual reminder about their insurance obligations.

The Code of Banking Practice also covers small business customers. As well as the existing obligations to small business customers, banks have a new notice requirement that will see them normally give at least 10 business days’ notice before making any necessary materially adverse changes to a small business customer’s terms and conditions of their credit facility.